Where is the market headed?
Imagine you are in the cockpit of a Jet with a trained pilot. You are heading to a certain destination. Suddenly there are noises coming out from outside “Turbulence, Turbulence. Jump. Jump out of the plane” and then turbulence actually hits.
What do you do?
- Jump out of the plane (with a parachute)?
- Sit tight and sail through?
If you are like me and most people, we will sit tight trusting the pilot to take us safely to the destination. I am sure you know me and my thinking by now. My point was not just about trusting the pilot and staying the course (I have made this point earlier as well); I had a different point to make but I needed to set the context with this example.
This is exactly what happened in the stock markets globally in February –March 2020. Everyone had thought the stock markets would crash land but instead they surprised everyone by making a new high. Let me tell you that many of those without pilots, and even the ones with untrained pilots jumped out and many are still waiting out.
However, the ones who are still sitting in the flight and have had a great flight are now once again faced with the same questions “Will there be turbulence ahead? Where are the markets headed?” The noises are only getting bigger from those who have missed it and from vacuous (mindless) people in general.
Are you hearing these noises too?
If you are hearing these but ignoring them like wise people do, Great Job. The Wise people know that turbulence is a normal part of flying. Pat yourself on the back.
If you are hearing these but cannot ignore them, the next few paragraphs might help.
The first thing to do in such situations is to ask yourself this question “Where am I Headed?” Are you clear about where you are going?
This question is far more important than where is the market going. The market will do its thing of going up and down. The truth is it does not matter. Additionally, no one knows despite the following positive things
- The Pfizer –BioNTech’s COVID-19 vaccine rollout has begun in the UK and US. It is just a matter of time other vaccines will roll out and the vaccine distribution will happen globally.
- US Election Uncertainty is out of the Way and Fresh Stimulus is on the way in the US.
- FIIs (Foreign Institutional Investors) had sold sharply in early 2020. They are buying back as quickly as possible and as much as they can.
- Interest Rates are likely to be lower for an extended period. This is lowering the cost of capital for businesses and a lower borrowing rate for home buyers (home sales trending upwards because of low interest rates, stamp duty reduction, and other offers)
- Even though more lockdowns could happen globally, we have not only survived but have made further progress in many areas. More importantly, we have learned to live with COVID-19, and it is no longer that unknown and uncertain cause of extinction of the human race. We know now that humanity will not only survive but thrive.
- There is so much pent-up demand to travel, dine out and spend in general (that a concept called revenge shopping has become popular).
- Businesses have reduced costs, and become leaner, faster, and innovative. ITC Group Hotels for that matter have started delivering food of its premium restaurants on Swiggy.
There are many others, but I am sure you are getting the point.
Interesting Fact: Doordash (the loss-making equivalent of Swiggy in the US) listed in the US and on listing day went up by 85%. This loss-making company is now valued at $50-60 billion dollars (these numbers keep changing).
While there are many positive things and reasons to cheer, aren’t there any negative things.
Do not get me started here. There are and will always be reasons to not invest (Read a previous post on this). If we focus more on such reasons to not invest, we would still be living in caves believing that a lion was still waiting for us outside. Investors have to bravely venture out of their cave with the help of a real financial professional and believe the most innovative companies in the world will be in much better shape in 2030 and even better shape in 2040 and beyond. The right way to look at ownership of companies is over an extended period (decades) and not 1 or few quarters.
The best thing that is happening today is that the markets are going up on the back of a wall of worry. Think about the Euphoria of 2000 or 2007 or even during the Harshad Mehta phase (recommend watching the Harshad Mehta Web Series based on the book “The Scam”). Is the stock market going up on the back of Euphoria with everyone investing in the stock market? Majority of the domestic money is still out, and it seems like it will return at some point of time. We do not know that yet. Enough about this perspective and back to yours.
Once you have asked yourself “Where am I headed?”, ask yourself the following questions:
- Have your goals changed? If you cannot think of goals, think if your needs have changed.
- Do you need money for any of your goals?
- Do you have sufficient liquidity (either stable income and /or liquid funds) to meet your next 12 + expenses? If you feel the need for more, go for it.
- What has changed in your personal situation? Has anything changed?
There are some more questions, but I am sure the above should give you sufficient clarity. If your goals have not changed or if you do not need money NOW or if you have sufficient liquidity, then it does not matter where the markets are headed. We have witnessed in the past several decades that even if the markets go down, they will come back up. If indeed the markets go down, they will be back sooner than later. More money is lost waiting for corrections than in corrections themselves. You need to invest and be invested for compounding to work for you.
I finally end with an amazing quote by Nick Murray “Permanent Loss in a broadly diversified portfolio of quality equities held for the long term is a MYTH. That in fact when permanent loss occurs, it is always a human achievement, of which the equity market itself remains incapable”.
Like I have mentioned before – You are only Investing NOW; You are not Investing FOR NOW.
P.S. Always consult a Real Financial Professional (or your Financial Pilot) before you take key financial decisions. Needless to say, flying a Flight without the Pilot but with all the manuals, software and tools is not only injurious but deathly.